Michigan takes over Detroit finances

Governor of US state appoints emergency financial manager with powers to control all of the struggling city's spending.

Detroit has an unemployment rate of 18.2 percent, with a third of residents classified as living in poverty [Reuters]

The governor of the US state of Michigan has chosen an emergency financial manager for Detroit, finalising a state takeover of the city's finances.

Rick Snyder announced on Thursday that he had chosen Kevyn Orr, a lawyer and bankruptcy expert, for the position that will give him powers to control all of the Detroit's spending.

Orr, who has worked on the restructuring of Michigan-based carmaker Chrysler, said that he hoped to avoid a bankruptcy filing for Detroit, which would rank as the biggest municipal bankruptcy in US history.

"Let's get at it and work together because we can resolve this, people of good faith. Don't make me go to bankruptcy court," said Orr, who is expected to assume the role on March 25.

In his new role, Orr will have wide-ranging authority to mend the city's budget, including renegotiating labour contracts, selling of assets and even suspending elected officials' salaries.

High unemployment

Detroit has lost 250,000 people during the last decade and remains saddled with a $327m budget and more that $14bn in long-term debt.

It has been making ends meet on a month-to-month basis with the help of bond money held in a state escrow account.

Due to its cash deficit, a state-appointed review team had previously determined that Detroit would have to either increase revenues or decrease expenditures, or both, by about $15m per month for three months, to "remain financially viable".

Snyder had decided to appoint an emergency manager after the absence of legitimate turnaround plans from Mayor Dave Bing and the City Council, as well as underfunded city services.

The governor said that Orr, whose contract was for 12 to 16 months, was the right person for the job because of his successful career in restructuring and bankruptcy.

Detroit city leaders have long opposed a state takeover saying they were making progress on improving the financial situation.

Several dozen Detroit residents also protested against the state takeover, saying that their right to vote for their own leaders is being usurped by an unelected manager.

A new law, which will take effect later in March, allows the manager to terminate collective bargaining agreements with the city's 48 unions.

More than a third of Detroit residents are officially classified as living in poverty, and it has an unemployment rate of 18.2 percent, far above the US jobless rate of 7.7 percent, according to government figures.